In the past, employer-sponsored pensions were much more common, and employees were encouraged to save more thanks to contribution matches. Now, 401(k)s are the leading retirement savings vehicle in the workplace, and self-directed savings, with varying degrees of employer matches, leave retirees’ financial futures all over the board.
As a result, more people lack the savings to last a lifetime when they leave the workforce. According to John Huff, the 2016 President of the National Association of Insurance Commissioners, four out of 10 baby boomers have no retirement savings. None at all.
As you can imagine, this poses a challenge for financial professionals working with clients who have little to no assets but still need retirement income solutions. And it’s not just an issue for people who didn’t save. Others may have experienced losses in the securities markets or had to make substantial withdrawals during the recession.
To find a retirement income strategy that may be successful, financial professionals have gotten resourceful. Some financial professionals who once eschewed annuities are now taking a second look.
Just because people don’t have a lot of money saved for retirement doesn’t necessarily mean they have no assets. For example, some boomers may be out of cash but living in an oversized house they no longer need. In this scenario, homeowners who downsize before retirement could use some of the proceeds to purchase an annuity that will provide a guaranteed stream of income during retirement.
Others may have either received, or expect to receive, a modest inheritance and can use an annuity to convert that fixed amount into a lifetime of retirement income.
While it’s becoming more common for financial professionals to recommend annuities, employers are still warming up to the idea. Eight in 10 U.S. employees say they’d like to have a guaranteed income option in their defined contribution plan, but only 50 percent of employers understand this — and less than 1 percent offer it.
The appeal of pensions was that they did more for retirees than just provide retirement income; they provided peace of mind. The same can be said of annuities. In fact, nine out of 10 affluent households with annuities say they’re confident in their retirement.